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Is Amazon planning to open hundreds of bookstores?

February 2, 2016 04:14 PM

Amazon.com Inc. CEO Jeff Bezos has frequently parried questions about whether Amazon would open physical stores with the observation that he prefers the economics of selling exclusively via the Internet. But he may be changing his mind.

The CEO of shopping mall operator General Growth Properties Inc. told analysts today on a quarterly earnings call that Amazon plans to open hundreds of physical bookstores across the United States.

Responding to an analyst’s question about e-commerce cutting into mall traffic, Sandeep Mathrani said that many consumers are coming to the mall to return items purchased online. Then he added, “And just case in point, you go to Amazon opening bricks-and-mortar bookstores and their goal is to open as I understand 300 to 400 bookstores,” according to a transcript of the call from SeekingAlpha.

Amazon did not immediately respond to a request for comment.

Mathrani did not say where he got the information about Amazon’s plans, and General Growth Partners did not immediately respond to a request for comment.

Amazon opened its first bricks-and-mortar store outside of college campuses in November, a 7,400-square-foot bookstore in Seattle offering 5,000-6,000 SKUs. Amazon last year also opened its first stores on college campuses, starting with one at Purdue University.

If Amazon does open stores, it surely will turn up the heat on rival retailers, experts say.

"At this point, anything that Amazon does means the consumer will be paying attention," says Lauren Freedman, president of online retail research and consulting firm The E-tailing Group. "Retailers will have to be vigilant, given that they are everyone’s competition. Of course physical stores are a unique beast with a different set of challenges and it’s not easy to be an overnight success. In some ways, these stores can be a lab to learn and of course to tap into the 90% of business still being done at stores."

"This news is clearly bad news for retailers who compete against Amazon," Marc Wulfraat, president of logistics consulting firm MWPVL International Inc. And he says the impact may go beyond the books category.

"The company has already established an efficient distribution network to support new stores so it stands to reason that the company is now poised to eliminate its only true weakness as a business which was its lack of retail stores," Wulfraat says. "Since the book and recorded music retail industries have been decimated it makes sense that Amazon will now move in to revive and grow them and there’s no reason why they won’t be successful in doing so. There’s also no reason to think they won’t expand to other product categories either. Not to mention that the stores will very likely serve as customer pickup points to help reduce shipping costs."

The possibility of stores serving as a convenient way for shoppers to return Amazon purchases could make this a good move for Amazon, according to Kevon Hills, vice president of research at StellaService, which monitors the customer service performance of online retailers.

"If this report is true, it is a clear move by Amazon to respond to how brick and mortar retailers have successfully invested in technology to leverage their physical stores to close the speed and efficiency gap with Amazon," Hills says. Specifically, this would represent a new opportunity for Amazon to offer free returns. Today Amazon can process refunds within a day or two, but cannot compete with retailers who offer 'free return shipping' by allowing shoppers to drop off a return at their neighborhood store. Best Buy, Walmart, Target, and other brick-and-mortar retailers operate at an advantage because they don't charge shipping when consumers make returns in stores. Overall, we've seen buy online, return in store (BORIS) become an area of focus for retailers with physical stores as it has been an advantage over Amazon."

Amazon is No. 1 in the 2015 Internet Retailer Top 500.

Amazon has been a major force in pushing U.S. book sales online, and leading to the demise of the Borders bookstore chain and the closing of many independent bookstores. Of the roughly $44.5 billion U.S. consumers spent on books, music and video products in 2014, 74% was spent online, according to Internet Retailer Top 500 figures.

Amazon has also played a big part in changing the way consumers read by introducing its Kindle electronic book reader and aggressively promoting e-books, often at prices well below those of printed volumes. A report in fall 2015 said Amazon commanded 74% of the $729 million U.S. e-book market.

Barnes & Noble Inc., No. 47 in the Top 500, is the leading bookstore chain in the United States, with 640 locations.